2023 (10) TMI 368 - AT - Income Tax

Addition u/s 40(a)(ia) - scope of payable' occurring in section 40(a)(ia) - non deduction of TDS u/s 194A on finance charges / interest paid to the non-banking finance companies and at the end of the year - assessee placed reliance on the case of Merilyn Shipping and Transport 2012 (4) TMI 290 - ITAT VISAKHAPATNAM and contended that provisions of section 40(a)(ia) is applicable only when expenditure remained outstanding at the end of the financial year ad no amount remained outstanding towards finance charges/interest - HELD THAT - Assessee has taken new sets of arguments which had not been taken before the Revenue Authorities during the course of assessment/appellate proceedings, which have been reproduced in the earlier part of the order. So far as the decision of Merilyn shipping is concerned, the same has been overruled by case of Crescent Export Syndicate 2013 (5) TMI 510 - CALCUTTA HIGH COURT which held that the provisions of section 40(a)(ia) are applicable not only in respect of payments outstanding at end of year but also in respect of payments which have been paid during year without making TDS. The Calcutta High Court decision was also approved by the Hon'ble Supreme Court in the case of Palam Gas Service 2017 (5) TMI 242 - SUPREME COURT which held that word 'payable' occurring in section 40(a)(ia) not only covers cases where amount is yet to be paid but also those cases where amount has actually been paid. Accordingly, in view of the above, reliance on the decision of Merilyn shipping supra would be of no assistance to the assessee. Alternate arguments of assessee which are to the effect that the assessee firm did not take any loans in the instant facts, and it was the partners of the assessee firm who had taken loans in their individual capacity and thereafter, introduced the same as capital in the assessee firm and secondly, the payees/recipients of interest had offered the aforesaid amount interest as income in their respective returns of income, we observe that the above arguments were never taken before the Department/Revenue Authority at any stage of the proceedings, and therefore, the Department never got an opportunity to test the veracity of those arguments (refer Written Submission before Ld. CIT(A) wherein no such arguments were placed on record before Ld. CIT(A). Therefore, the veracity of the aforesaid argument has not been examined by the Revenue Authorities at any prior stage since this argument has not been taken earlier and the Department has not had an opportunity to check the veracity of the aforesaid claim put forth by the assessee, which has been taken before us, for the first time. Accordingly, this issue is being set aside to the file of assessing officer to verify the claims/contentions put forth by the counsel for the assessee. Disallowance of freight payment - non deduction of TDS - Assessee submitted that the payee/recipient had reflected the aforesaid freight income in the income tax return filed for the impugned assessment year, and therefore, the assessee cannot be held to be an assessee in default - HELD THAT - We observe that the veracity of the aforesaid argument has not been examined by the Revenue Authorities at any prior stage. This argument has not been taken earlier and the Department has not had an opportunity to check the veracity of the aforesaid claim which has been put forth by the assessee before us for the first time. Accordingly, in the interest of justice, the issue is being set aside to the file of assessing officer to verify whether the payee/recipient has offered the income in its return of income as contended before us. The assessee may also file necessary documents in support of the above contention before the assessing officer. Assessee s appeal is allowed for statistical purposes.

Summary

Issues involved:
The judgment involves issues related to disallowance of expenses under section 40(a)(ia) of the Income Tax Act.

Issue 1: Disallowance of Rs.5.85 lakhs under section 40(a)(ia) of the Act:
The assessing officer observed that the assessee firm had paid interest to certain parties on which no tax was deducted at source under section 194A of the Act. The assessing officer made an addition of the said amount in the assessment order as the assessee did not file any response regarding non-deduction of tax. The CIT(A) upheld the disallowance stating that the appellant was required to deduct TDS out of interest payments to non-banking finance companies. The appellant's arguments were based on the partners of the firm taking loans in their personal names and introducing the same as capital in the firm, thus claiming no obligation to deduct tax at source. However, the ITAT found that the arguments presented before them were new and had not been raised before the Revenue Authorities. The ITAT set aside the issue to the assessing officer for further verification.

Issue 2: Disallowance of Rs.57,000 out of freight payment:
The assessing officer observed that the assessee had made truck freight payments on which no TDS was deducted. The CIT(A) upheld the disallowance. The appellant contended that the payee had reflected the freight income in the income tax return, thus arguing against being an assessee in default. The ITAT noted that this argument had not been examined by the Revenue Authorities earlier and set aside the issue to the assessing officer for verification of the payee's income disclosure.

Conclusion:
The ITAT allowed the appeal of the assessee for statistical purposes in both issues, setting them aside to the assessing officer for further examination.